April 04, 2012

A New Look at the Value of Prestigious Colleges

We've debated a few times whether or not a degree from a prestigious university like Harvard, Yale, etc. was worth the added cost. No one really questioned the fact that those schools had some advantages to them -- both from an educational standpoint as well as a "connections/networking" standpoint -- but they were just so much more expensive that there was doubt to their value.

Thanks to tuition hikes at California's state universities on the one hand, and the generous financial aid policies of Harvard on the other, attending the Ivy League university is actually a better deal for middle-class students from the Golden State, the San Jose Mercury News reports.

Public universities, with their shrinking support from state governments, still provide significant tuition breaks to the poor. But they can only do so much. Top private universities, by contrast, have massive endowments to support their educational mission and the wherewithal to spend that money on students who are higher up on the economic ladder.

The result: Prestigious schools long perceived as catering to those with elite pedigrees and family wealth are becoming a better economic bet for middle-class families than the public universities that were founded to serve them.

"There is no question that, for the typical middle-class applicant, Harvard is far cheaper than many state schools," Vedder said. "But it is even worse: the typical Harvard student graduates in four years, while the typical student at a state university takes five years (and sometimes six) -- if she graduates at all."

Don't blame those state university students; it's not that they're slacking off, notes the Mercury News: At California's public universities, "cuts have made it difficult to get all required classes in four years," slowing down the graduation rate.

So get this: you can now get a less expensive and potentially (I realize this is up for debate) "better" education at Harvard than you can at some universities. Of course you have to be middle class and right now they are just comparing Harvard to California public universities (not to mention the fact that you have to be smart enough to qualify for these schools), but the tide does seem to be turning. With government funding going down it appears that public school tuition has nowhere to go but up. But with the big-bucks endowments the Ivy League schools have they don't have those problems.

And if it's not enough that the public colleges are more pricey when looking at equal time spent at each, it actually takes MORE time to graduate from a state school in some cases, driving the costs up even more and making Harvard an even better "deal."

To be clear, I'm not saying that one option is better than the other for everyone, that the rules have changed completely, that this cost changing situation is widespread, or that there's even a definition of what the "best" college is (IMO, "best" is in the eye of the beholder depending on his specific goals, needs, and desires.) What I am saying is that perhaps some of our past assumptions about costs of prestigious schools versus other universities could be changing. And if this trend continues, our conclusions about whether or not a prestigious school is worth the added cost may change as well (since they actually could end up being less expensive than other alternatives.)

Anyone out there have kids just entering college and weighing these issues? What's your take on the situation?

My oldest is only 9 so I'm not sure what the future holds. I could see putting the collage savings toward to starting a business, if I believe they are more suited to it.

However, if my kids decide on college I would most likely have them apply to a range of universities. Where they go will depend a lot on the financial aid packages.

I would want them to fill out a large number of scholarship applications as well to avoid student loans. Finally we would look into the possibility of them taking AP or Community colleges classes to get their general requirements so they don't take 5 years to graduate.

Its a good point. You should not assume a school with a very high tuition rate is unaffordable. The private schools give more financial aid and help subsidize lower income students.

The free ride deal however really only applies to a handful of the Ivy league and a few other prestigious schools that offer full financial aid promises. If you can get in and you can't afford it then they'll pay your way. Its been that way for a few years actually so this isn't really new. But it only applies to specific schools like Harvard and the Ivy league which make the promise and can afford to fund lower income students via their massive endowments. Its a short list and the bigger challenge is getting accepted.

Also, since 98% of Americans seem to think they're 'middle' class, being 'middle class' doesn't necessarily guarantee a free ride. The amount of aid you get is based on the financial aid formulas. You could make $90k with modest assets and be expected to contribute $20k/yr towards Harvard based on the financial aid form expected family contribution.

Rick, in my opinion, that has always been the best means for finding the "best" fit (financially and academically) for getting a school, as long as you're willing to jump through the hoops and fill out the paperwork. I discovered that for myself as a high school senior (which was *quite* a bit ago); the top 25 school I ultimately chose was definitely cheaper than my state school (definitely not top 25 or even 50), and the top 5 school came close to matching the state school price.

The news articles about the cost of college have always been a lot of hype and not a lot of substance -- bottom line, the value of a college has always been highly dependent on the individual school and the individual family's financial circumstances. Picking a college is a lot like getting a quote for car insurance -- only rich people (or by comparison, people with the highest risk profile) pay the highest rates, and you can always at least try to ask for money off. Some colleges are more willing to discount their sticker price than others -- i.e. those that have lots of resources to support student costs. Unfortunately, the number of colleges that actually have a lot of resources to support students remains relatively small to the number of students who want to attend college. The only way to find out which schools are most affordable to an individual family is to apply and get a "quote," without making too many assumptions about the high-sticker price schools at the outset.

In addition to your strategy, I suggest that you (or make your kids do it) also communicate with financial aid directors and ask for more aid, especially if there are comparable offers on the table. I got $3000 extra in outright grant aid from my Ivy league *professional* school (where they expect you to support yourself with loans, and the average six figure-ish starting salary reported actually is legitimate) just by emailing the financial aid director and respectfully asking.

@Paul What? Six of the nine Supreme Court justices (Roberts, Scalia, Kennedy, Ginsburg, Breyer, and Kagan) received law degrees from Harvard. Roberts was also an undergraduate there. Where would you prefer to launch your career in constitutional law?

Financial aid and overall cost are factors, but so is the type of degree you earn because that will determine how easy it will be to pay back student loans. I would rather be a bit more in debt at graduation but have a higher probability of getting a good-paying job and paying it back. What good is a "good deal" in financial aid if you don't study a field that will allow you to pay back any loans? Major in what you like, get a minor in what you love -- you won't go wrong.